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Education to development: Sustainable? - Views on News from Equitymaster

Education to development: Sustainable?

With industry analysts expressing major concerns over shortage of human resources in the software industry, software education seems to be quite an attractive proposition. In India the market is divided into the organised or branded players like NIIT, Aptech, SSI who are predominantly national players and the unbranded or unorganized local players. The organised sector targets at the premium segment whereas the local players focus on the economy segment (basically offering low cost courses and concentrate on volumes).

It very interesting to note that all three software education majors have quite a similar portfolio covering retail education, software development and content. In FY00 68% of the revenues for SSI came from education. The figure was 51% for NIIT and 85% for Aptech. Foray into software was primarily due to the fact that all the market players felt decline in growth rates from their core business (education).

Quarter ended Sep 00

(Rs m)

Aptech

SSI

NIIT

Sales

1,524

1,015

2,149

Other Income

42

121

97

Operating Profit (EBDIT)

344

262

2,149

Operating Profit Margin (%)

23%

26%

49%

Interest

-

17

28

Depreciation

85

51

109

Profit before Tax

301

316

1,030

Tax

48

40

60

Profit after Tax/(Loss)

254

276

970

Net profit margin (%)

17%

27%

45%

No. of Shares (eoy) (m)

30.3

12.8

38.7

Diluted Earnings per share*

34

86

100

*(annualised)

P/E (at current price)

11

16

16

NIIT is a clear winner among the three. The software solutions division caters to knowledge management, e-business, traditional client server and enterprise application markets. The company has reorganised itself into four independent business units Education and Training, Project K12 (Computer education for school children), Software Solutions (vertical focus financial services industry) and Knowledge Solutions. It has also set target to grow to Rs 100 bn by 2006.

SSI too has been showing some interesting developments. It has separate division SSI Technologies. It develops solutions for the banking and the securities industry. The company boasts of clients like Cititbank, Bank of Madura and Siam Commercial Bank. It recently completed the acquisition of AlbionOrion. This will help SSI to make inroads into Telecommunications, Healthcare and Insurance verticals. It is quite interesting to note that all the three verticals are very promising. AlbionOrion will also bring technology advantage to SSI. AlbionOrion has experience in the areas of distributed computing and enterprise application integration.

Aptech provides software solutions in the area of knowledge management. This includes dedicated training development for 4 clients, enterprise solutions for which it has tied up with BAAN ERP and software solutions in the area of e-commerce.

Another trend seen in the industry is that all the majors are offering online courses with Aptechís onlinevarsity and NIITís netvarsity.

The reasons for deviating into software development are the comparatively low margin and growth rates in the education sector. But the concern is that with the demand supply gap closing in and fierce competition; the margins will be pressurized in the software business too.

Revenue mix

FY99

FY00

FY01E

Education business

38.1

23.7

24

Software development

45.2

27.3

30

Education Software

45

35.4

39.9

The outlook for NIIT seems positive. But for SSI and Aptech caution is the key. Both the companies have just entered the software solutions area. How they perform over a period of time will give an indication of future sustainability.

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